Galery

1

I think the Eurozone faces an existential crisis. So, my own view is that it is impossible now for the Eurozone to come out of this situation with no permanent damage. It is the market. It cannot now turn back the clock because of the failure of the Eurozone to give the confidence to the markets that they will underwrite each other’s fiscal problems. So , the markets are now looking at each individual country as a credit risk in its own right. And it will be almost impossible for the Eurozone to reverse that trend and so, I think that it’s almost certain that one or more countries will leave the Eurozone and they may have to be a group that travels all alone with their currency. Otherwise, I fear that there will be a disorderly break-up where we have a severe banking crisis and sovereigns in Europe will be unable to afford to bail them out a second time.

So, Britain must be very proud with its decision not to use the single European currency.

We do not talk about it too much but, of course, we are relieved. Britain has one of the highest GDP-debt ratios in Western Europe and if we did not have sterling, we would have been in a similar situation to Greece and Italy. Because we have our sterling currency, our currency has been able to devalue by up to 25% since the financial crisis. And that has got our economy afloat. And it is a great sadness to me that for countries like Greece and potentially Spain and Italy and Portugal, they are unable to use one of the major tools that most countries have to be able to solve their problems and that is their currency. So, I think, as I say, it is going to be impossible to escape from this crisis with no permanent damage to the Eurozone.

You said that it is almost certain that one or more countries will leave the Eurozone and you are probably focussing on Greece as one. Do you have any explanation why Greece and the other countries from the south are not capable of implementing the necessary reforms to stabilize their financial system?

Yes, certainly. I mean they have massive debts. They do not have the institutional structures to be able for example in Greece’s case to raise taxation. So, they literally can’t collect their taxes. Their tax collection system is not good enough. They have big problems with corruption, with tax avoidance. They have enormous problems with public sector, early retirement – the retirement age has been as young as 55 years old, when Germany’s is 66 already. And so, it is extraordinarily difficult to get from where you are today to a package of such extreme austerity. But in the end, I think many voters in Greece are thinking „let’s just leave, nothing can be this bad”. I actually think they are wrong. I think it would be worse if they leave the Euro but nevertheless, it is very difficult for them to implement, because they physically cannot make it happen, these packages of austerity.

If we draw a parallel between Ireland and Greece although the crises are different, why is Ireland more successful in implementing the reforms? The Greeks have done a lot of work as well but they are not making any progress.

That is a really interesting question and there must be something cultural in it. The Irish are in a very different fiscal position and yet there people seem to be resolved to solving the problem much as Britain is. And they seem to be determined whatever the cost to them that they will go through the pain in order to come out to the other side. And all credit to them and actually even though Britain is not in the Euro, there is still a confidence issue about how determined we are to implement our austerity package. And I think Ireland finds itself in this similar position to us, which is that because we have said from day one “we will do this” and because our institutions to collect taxes, to impose pay restraint and so on, because those institutions are strong, the markets have the confidence that we will actually be able to do it. I think that is the big difference between us and southern European countries, where we are actually able to do it and we have been very persuasive in telling the markets that this is what we intend to do. And in southern Europe, there just isn’t that level of confidence.

Do you see any possibility for a new country joining the Eurozone?

Absolutely yes, I mean in future times. I suspect no country would wish to join the Eurozone right now, because it would be a huge liability potentially for that country. But, yes, I can see in the future that it may be possible to do so again. But I have always thought  - I was in financial markets and investment banking when Britain left the ERM and I was also there when the single currency was formed – and I have always thought at the time it is impossible to have money in a union without a fiscal union. That I think is going to be the key challenge for the Eurozone. They are going to have to move to a fiscal union, because it is impossible to have one member state with a strong manufacturing economy, exporting as Germany does, and with a late retirement age at 66, with very strong ability to raise taxes and so on versus a country in Southern Europe that has a very young retirement age, very loose fiscal policy and inability to collect taxes and so on. You simply cannot have those differences in your civil structures. So, you need to have a much closer integration in order for the Euro to be a successful currency.  

The solutions that are under consideration right now, the issue of Eurobonds, tax on bank transactions, common tax policy, creating an administrative institution like a financial ministry of the European Union,  how effective could they be in solving all these problems?